In the dynamic world of investing, dividend stocks stand out for offering immediate returns, especially those with a history of consistent and increasing payouts. These stocks have demonstrated resilience, often outpacing the volatility seen in benchmark indices like the S&P 500. This market behavior underscores an important investment principle: a rising dividend is a strong signal of robust management and future growth potential.
Let’s delve into two noteworthy dividend stocks that come at a combined price of approximately $500. Both are seen as undervalued and are either new to the dividend landscape or boast a commendable track record of dividend increases.
First up is Alphabet Inc., the parent company of Google (NASDAQ: GOOG) and (NASDAQ: GOOGL). Recently, Alphabet’s stock has dipped about 5% amid growing scrutiny of its search and advertising operations and concerns over its performance in the artificial intelligence (AI) sector, especially in comparison to Microsoft, which has partnered with OpenAI.
Despite these short-term fluctuations, the long-term fundamentals remain strong. In the first half of 2024, Alphabet reported an impressive $165.3 billion in revenue, coupled with a net income of $47.3 billion—year-over-year increases of 14.5% and 41.5%, respectively. The company’s financial health is fortified by $88.9 billion in net cash, enabling it to initiate a quarterly dividend of $0.20 per share earlier this year, translating to an annual yield of around 0.53%.
Notably, Alphabet’s low payout ratio of 2.8% indicates ample room for future dividend growth. The tech giant is also committed to enhancing shareholder value through significant share buybacks, having repurchased $31.4 billion of its shares in the first half of 2024 alone. Such proactive steps highlight Alphabet’s dedication to capital allocation strategies that benefit shareholders.
Sundar Pichai, CEO of Alphabet, has confirmed the company’s aggressive investment strategy in AI—designating $25.2 billion in capital expenditures in the first half of 2024, up from $13.2 billion during the same period in 2023. While AI poses competitive challenges, Alphabet maintains its position as a major force in advertising and search, backed by valuable assets like YouTube.
Next, we have Caterpillar Inc. (NYSE: CAT), a prominent player in the construction equipment sector. Although its stock has shown modest growth, yielding a total return of just 1.5% over the last six months, Caterpillar’s commitment to dividends remains unwavering. The company has consistently paid dividends since 1989, increasing its payouts annually for 31 years, currently offering a quarterly dividend of $1.41 per share and an attractive annual yield of roughly 1.7%.
Caterpillar manages a responsible payout ratio of 23.7%, suggesting that it can sustain its dividend growth moving forward while also repurchasing shares to enhance shareholder value. In fact, in 2024, the company has reduced its outstanding shares by 2.9% and over the last five years by 12.3%.
Despite recent stagnation attributed to rising interest rates affecting construction demand, Caterpillar is well-positioned for future growth. Projects fueled by the $1.2 trillion Infrastructure Investment and Jobs Act, paired with recovering demand for housing, stand to boost its performance in the coming years. The stock is also trading at a relatively low valuation of 15.5 times earnings, below its historical average of 16.9, making it potentially appealing for investors.
Both Alphabet and Caterpillar are not just dividend-paying stocks; they are also poised to reward shareholders over the long term with stable and growing dividends. For those beginning their investment journey or looking to enhance an existing portfolio, these stocks present compelling options due to their sound fundamentals and fair valuations.
Before diving in, investors should continue to conduct thorough research and analysis. It’s always beneficial to explore additional recommendations, as market conditions can lead to great opportunities in unexpected places. The current investment landscape, characterized by notable shifts and trends, is ripe for strategic expansion for long-term gains through dividend stocks, particularly in the technology and industrial sectors.